Tuesday, November 27, 2007

Sometimes I wish... but I continue to hold fast as these stocks in WAN optimization continue to get bludgeoned due to fear over Cisco comments about enterprise spending in the US slowing. No matter what the companies themselves say or show in their financial performance; it just doesn't matter.

So one of the hottest areas in networking technology is something called Wide Area Network (WAN) optimization - or making networks even faster.

Network World magazine tested a variety of WAN optimization products a few months ago. Riverbed's scored considerably higher than both established competitors like Cisco and smaller ones like Blue Coat Systems. Zeus Kerravala, who heads global enterprise research at the Yankee Group, calls Riverbed "one of the most interesting tech companies that has come along in quite a while."

Companies of all kinds are centralizing data and applications to reduce the number of servers they operate. But if you're on a PC in New York and have to get a file from a server in San Francisco, get used to twiddling your thumbs. For example, a 1-megabyte Excel file, which would display almost immediately if you called it up from your own hard drive, typically takes about 100 seconds to load cross-country. The problems can become more pronounced if you're doing heavy e-mail remotely. The reason, according to Kennelly, is that data has to travel back and forth to a hard drive 977 times in a row to get that Excel file to load. But each one of those little trips takes a tenth of a second when it's traveling all the way back and forth across the country.

So here's what Riverbed's technology does: fake out the software so it delivers its information payload in bundles. Rather than 977 trips, the data might be able to take only 10 or 20. That radically increases the perceived speed of the application.

To achieve this Riverbed's engineers had to dissect - or reverse engineer - Microsoft's software. "Thank God for Microsoft," says Kennelly, "because they created Windows, which is so inefficient. That helped create our company."

Riverbed has done the same for a range of other types of applications as well: e-mail, accounting, databases, customer relationship management programs, etc. It sells a box filled with fast processors and its own software. You buy at least two, and put them next to a network router or switch at both ends of the trip. Installing them is almost as simple as just plugging them in and turning them on. They range in price from $3500 to $125,000.

Riverbed started shipping products just three years ago but it already has 3,000 customers. But Riverbed (Charts) stock is dramatically down - about 50% - in the past month. It's been a terrible few weeks for networking and enterprise technology stocks, especially high-fliers like this one with outsized price-to-earnings ratios.

But there seems little reason to think Riverbed won't continue leading in WAN optimization, even though heavies like Cisco (Charts, Fortune 500), Juniper, Citrix and others are fighting to push it aside. Security analyst Troy Jensen at Piper Jaffray has followed this industry for seven years, and says Riverbed's technology is "without a doubt superior." While he was neutral on the stock when it traded around $50 a share, at a recent price of $28 he calls it "a no-brainer."

Analyst Cobb Sadler at Deutsche Bank Securities, another fan of Riverbed, is enthusiastic about its new all-software optimization product, which can go into a laptop so workers out of the office can get high-speed access to corporate data. "They've got the only product that allows you to do that right now," he says.

And even in the midst of all the networking and tech stock carnage, Riverbed competitor Blue Coat (Charts) reported surprisingly good results on November 20th, suggesting to Jensen, among others, that the WAN optimization market may be resistant to the downturn in enterprise technology spending many now fear.

There are several reasons why this is an almost perfect technology. We're in an era of global business, so operations can be anywhere. Companies want to centralize computing resources. And nobody's willing to wait for anything.

*******Very bullish article eh? You'd think someone would care but nope - both these stocks have been bludgeoned to death. One is the clear technical leader, the other has the best combination of security and optimization rolled into 1. Blue Coat Systems *almost* made a technical breakout after reporting lights out earnings [A Damn Shame], but took a near 6% hit today. Typical. The fear of the boogeyman in the future trumps the reality of the here and now. If one company in a sector is bad, they must all be dying, etc. Instead people run to such high growers as ... Procter & Gamble. But this is why technical analysis is key for near term movements - until the 'coast is clear', undervalued stocks can remain so for a long time.

Oh well, enjoyable article that explains in layman's terms what they do, and any article that has a dig at Microsoft is fun to read. All I know is the stock performances of late have had me feeling "Blue". ;)

Long Riverbed Technology, Blue Coat Systems in fund and in personal account

Disclaimer: The opinions listed on this blog are for educational purpose only. You should do your own research before making any decisions. This blog, its affiliates, partners or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.